The 5 worst pieces of property advice!

22 Feb

Everyone loves to give out property advice. Here is the worst of it!

Worst property advice # 1 - Buy for equity

When you purchase a property, most people hope that over time equity will grow. The property will increase in value, therefore, making you money. However, your cash flow is equally as important.
- If you cannot pay your mortgage, then it does not matter what the value may be in the long term as you will need to sell.
- If you rely on the property for an income stream, and that income does not come to fruition, then you will also need to sell the property.
Always make sure the cash flow components of owning a property align with your financial situation.

Worst property advice # 2 - It worked for my (friend/sibling/parents/online influencer)

We've all seen the people on the news stories who own 20 properties by the age of 30. Or the 'influencer' who tells you of these fool proof investments you can buy for $500,000, spend $30,000 on a renovation, have it re-valued at $850,000 and take the equity out to buy another property. Sounds too good to be true right? That's because it is.
Perhaps you have a friend or family member who purchased in a particular location and has witnessed a great return. That's fantastic for them. Remember that just because it worked for them, is no guarantee it will work for you.

Worst property advice # 3 - Property markets always go up

They don't. Property markets move in cycles. Historically, a lot of data over time tells us they do generally move in an upwards direction. However, that does not mean every single property in that market has gone up in value.
If you think it will take you longer than three years to make money on a property, then you are relying only on the market moving upwards. That is a risky strategy. Make sure you are purchasing a property that will outperform in any market.

Worst property advice # 4 - Property investment is easy

Purchasing a property is not a set-and-forget strategy and owning an investment property is not easy. To be an effective property investor includes:
- Investment of your time to manage the property and time spend with an accountant working out various tax implications
- Financial investment to cover shortfalls and property maintenance
- Continually re-evaluating your financial plan on whether or not this continues to be the right investment

Worst property advice # 5 - Buy off the plan

This is by far THE WORST ADVICE! People believe they can pay a 5% or 10% deposit now, and when the property is completed, the market will have moved upwards and they can sell at a profit without even moving in. Or worse, they planned to move in, but now they've seen the finished product, it is nothing like what they were sold in the showroom.
Your risks include:
- The market hasn't moved or moved downwards and you can no longer secure finance. In some cases, you might forfeit your whole deposit
- The quality of the build is sub-par and the property will struggle to sell, and/or you will have significant special levies to rectify issues
- The developer cut some corners and what you thought you were buying is not what you now own
- The builder or developer run into financial trouble and the building is not completed (or the timeframe is significantly pushed out)
- You cannot get your deposit back if your circumstances change unless you find someone to sell to (and you are still liable for stamp duty)

There is lots of bad property advice out there. Lots of advice that does not take into account your personal circumstances.

Make sure you take advice from people who have your back and take time to understand what is most important to you!